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Corporate borrowing and profitability in India

Author

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  • Sumit Majumdar

    (School of Management, University of Texas at Dallas, Richardson, TX, USA)

  • Kunal Sen

    (IDPM, School of Environment and Development, University of Manchester, Manchester, UK)

Abstract

This paper examines effects of different types of corporate borrowing on firm profitability in India. We show that in contrast to the conventional thinking on the importance of monitored debt in determining firm performance, what matters more is arm's-length lending in the form of fixed deposits in influencing firm profitability. We argue that the strategic implications of fixed deposits can be mainly attributed to the fact that they are both unsecured and privately held, which make the creditors associated with this type of debt the most likely to monitor firms' performance. The results suggest that debt structure matters, and it is important to take into account institutional differences and the heterogeneity of debt in the analysis of capital structure on firm performance. Copyright © 2009 John Wiley & Sons, Ltd.

Suggested Citation

  • Sumit Majumdar & Kunal Sen, 2010. "Corporate borrowing and profitability in India," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(1), pages 33-45.
    • Handle: RePEc:wly:mgtdec:v:31:y:2010:i:1:p:33-45
    DOI: 10.1002/mde.1472
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    4. Bandyopadhyay, Arindam & Barua, Nandita Malini, 2016. "Factors determining capital structure and corporate performance in India: Studying the business cycle effects," The Quarterly Review of Economics and Finance, Elsevier, vol. 61(C), pages 160-172.

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